Economies in Transition

Introduction

It is well known that the East European Communist governments were unable to provide their citizens with a standard of living comparable to that of the West. This fact is often held up by scholars as an important underlying cause of the widespread discontent with Communism that swept through the region in the late 1980s.

When those living east of the “Iron Curtain” had to stand in line for hours to purchase low-quality food or consumer products, when their apartment buildings were often grim and sometimes poorly heated, and when Western television broadcasts showed Americans and West Europeans driving expensive cars and wearing expensive clothes, it seemed only natural to observers in the West that the upsurge of popular discontent in 1989 had at least some basis in the economic failings of the Communist regimes. After all, who wouldn’t be unhappy or even angry living in economic circumstances like those in Poland or Bulgaria?

But to view the economic situation in Eastern Europe through this prism is to impose a particular viewpoint on people whose motivations may well have been quite different. First of all, it assumes that people in Eastern Europe were very unhappy with the economic system under which they lived. It also assumes that this unhappiness led to revolt. As Padraic Kenney argues in his interview for this project, it doesn’t make sense that, after having endured decades in an inefficient economic system, people would suddenly throw down their newspaper and say “That’s it. I can’t stand in line for stringy chicken one more time! I’m going out into the streets to demonstrate against Communism!” Thus, the economic problems of the Communist states played a role in the events of 1989, but were probably not the most important factor for most people who helped bring down the regimes.

If we are going to make sense of the role that economic factors made in the events of 1989, it is essential that we take a broader view of just what the economic situation actually was.

When we think about what went wrong with the economies of the East Europe states in the late 1980s, the first thing to consider is the larger historical context. Prior to the Second World War the region that encompassed Communist Eastern Europe was largely on the periphery of European economic development, with only the most Western regions (East Germany, the Czech portion of Czechoslovakia, and portions of Western Poland and Northern Yugoslavia) reaching anything like the level of modern economic development experienced in countries such as France or Britain. The rest of the region was largely underdeveloped, with most employment tied to inefficient forms of agricultural production.

The Second World War devastated much of the region, both in terms of population losses and in terms of the destruction of infrastructure (roads, buildings, rail lines, and industry). The Communist regimes that took power after the war were very successful first in rebuilding the economic infrastructure that had been destroyed during the war and then bringing about a rapid transformation of the local economies from their dependence on agriculture to economies based in heavy industry. In fact, from 1950-1973, the countries of Communist Eastern Europe had the highest rate of economic growth of any world region, including Western Europe and the North America.

After 1973 those significant successes began to fade and by the early 1980s governments across the region were struggling unsuccessfully to stave off the recession that had hit the non-Communist economies. In addition to the world recession of the early 1980s, three significant issues specific to Eastern Europe made it that much more difficult for the Communist regimes to improve or even maintain their economic situation. First, the economies of all of these countries were centrally planned, which meant that government ministries strictly controlled the allocation of resources—money, raw materials, employees, and so on. This system limited the ability of the managers of individual enterprises to respond quickly to opportunities presented by changing economic conditions. Instead, they continued to produce whatever the Communist government's economic plan called for, regardless of whether or not there was any demand for their products. The result was oversupplies of some goods and undersupplies of others—in other words, significant amounts of time and money were wasted on products no one wanted, while consumers and businesses couldn’t get much of what they (em>did want.

The second issue, which appeared in the late 1970s and early 1980s, was that the economies of Eastern Europe had maximized their ability to supply one another with the raw materials, goods, technologies, and services that they needed to sustain economic growth. This meant that East European states had to turn to the world market in order to acquire these essential components of future economic growth. Taking part in the world market, something the Communist regimes had largely (but not completely) resisted for decades, meant they had to be able to manufacture goods that countries outside of the Communist bloc would actually want to buy. If such goods could not be manufactured, the East European governments would have to borrow money on international capital markets to pay for their economic growth. Eventually such loans had to be repaid and repaid only in currencies convertible on the world financial markets. Central planners in these states therefore had to either find ways to sell products that would generate earnings in hard currencies like the Dollar or the Deutschmark, or they had to raise prices on goods and services at home, which often led to discontent among the population.

The third issue that made it difficult for the East European Communist governments to respond to the world wide economic slow-down of the 1980s was the fact that all of their economies were firmly tied to the Soviet economy, both through trade and the joint ownership of enterprises. The East European states were especially dependent on the Soviet Union for oil and natural gas, both of which they purchased from Moscow at below market rates. In exchange, much of their industrial production went to the Soviet Union at below market prices. When President Ronald Reagan launched his military build-up in the early 1980s, Soviet military and economic planners attempted to keep pace, forcing their East European allies to do the same. For example, one of the largest tank factories in the Soviet empire was in eastern Slovekia; a large drain on production and resources yet whose product was sent almost entirely to the Soviet Union. The communist Czechoslovakian government experienced large difficulties meting its own requirements that the diversion on these resources to military production only made worse. These tangled economic pressures were intensified after Gorbachev's policy of perestroika began to introduce some elements of a market economy into the Soviet model. Perestroika called for more local decision-making in the economic sphere along with more sensitivity to consumer demands: both of these pressures called into question the kind of arrangement typified by the large Slovekian tank factory.

One of the essential bargains between the Communist governments and their peoples was that basic goods and services would remain affordable to all. These goods and services might be scarce or even unavailable, but when available, they would be affordable. The economic problems of the 1980s put significant pressure on price controls, sometimes forcing the Communist governments to raise prices suddenly and significantly. For instance, it was a sudden increase in the price of food in Poland that helped set off the first round of strikes that resulted in the creation of the independent trade union Solidarity in 1980.

On the other hand, it must be kept in mind that the East European Communist regimes were able to provide many social goods, even if at standards below those in the West. For instance, homelessness was largely unknown in Communist Eastern Europe at a time when it was becoming endemic in the United States. Infant mortality rates dropped by more than one-third in most of the region between 1970 and 1989, while that same figure dropped by only 19 percent in the United States, albeit at a level well below that in Eastern Europe. These two examples do not mean that the Communist regimes were more successful at providing social goods than were the capitalist economies of the West. Rather, they are meant to indicate that the economic picture in Communist Eastern Europe was not universally bad. At the same time, the decisions of central planners regarding what would and would not be produced had direct consequences for individual citizens, often requiring them to make choices about things like family size, career, and location of residence based on what the government believed was best for the country.

One area where the economies of Communist Eastern Europe were universally bad was the environment. Prior to the mid-1980s these governments paid little or no attention to the environmental consequences of industrial production. The result was a level of industrial pollution and environmental degradation that is almost unimaginable today. The Chernobyl nuclear disaster in the Soviet Union in April 1986 led to a sudden and surprising upsurge in environmental activism across the region. Many of these environmental protests began to take on an overtly political character as the years passed and some of the main opposition movements in Eastern Europe in 1989 emerged from the environmental movement.

Another factor to keep in mind when we think about the economic situation in Eastern Europe in 1989 is that there were often substantial differences in economic conditions within particular countries. For instance, by 1988 macroeconomic indicators in the Czech and Slovak halves of Czechoslovakia were essentially the same, but this finding obscures the fact that in the Czech portion of the state most workers were employed in smaller, more nimble enterprises, while in the Slovak portion of the state, most workers were employed in huge and inefficient enterprises employing many thousands, if not tens of thousands of workers. For example, in Yugoslavia, the gross domestic product (GDP) per capita in the northern republic of Slovenia was more than double that of the southern republic of Serbia and more than five times that of the southern republic of Macedonia. When the Communist regimes fell and these states began to transition to a capitalist economic system, these regional differences played an important role in the break-up of each country.

When you examine the primary sources that are included here, ask yourself what these sources reveal about the economic situation in the region in 1989 and how you can make explicit connections between the evidence in the sources and the events on the ground in 1989. Remember that economic realities often imposed important limitations on what governments could and could not do in the face of political problems. Finally, remember that just because people are dissatisfied with their economic situation, they do not automatically want to change the form of government they live under.